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Journal of Sports Economics
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Uncertain Prospects

Rates of Return in the Baseball Draft

John D. Burger

Loyola College in Maryland

Stephen J. K. Walters

Loyola College in Maryland, swalters{at}loyola.edu

This study uses a unique data set and valuation method to quantify returns to teams in baseball’s high-stakes, high-risk amateur draft. Thanks to teams’ monopsony power over draftees and low-seniority players, payoffs on successful picks far outweigh losses on unsuccessful ones: the expected annual yield on the median first-round draftee is 44%. However, the pattern of returns is inconsistent with market efficiency. Expected yields are lower for high school draftees than collegians (36% vs. 57%), lower for pitchers than position players (34% vs. 52%), and decline for later-round long shots.

Key Words: market efficiency • bounded rationality • prospect theory

This version was published on October 1, 2009

Journal of Sports Economics, Vol. 10, No. 5, 485-501 (2009)
DOI: 10.1177/1527002509332350
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